The news looks good, so why have Sirtex shares been dumped?
Over the weekend, the results were released of a trial comparing the efficacy of two treatments for late stage liver cancer. The treatments were SIRT, pioneered by Australian biotech, Sirtex, versus Sorafenib. The results were generally positive for SIRT. So why has the market responded so harshly?
The results of the trial, named SARAH, were released at the International Liver Congress in Amsterdam. (Note this is different from Sirtex’s (ASX: SRX) upcoming trials in treating metastatic colorectal cancer in the first line setting; these are SIRFLOX, FOXFIRE, and FOXFIRE Global, whose results will be released later in FY17).
The SARAH trial demonstrated that SIRT (which stands for Selective Internal Radiation Therapy) results in median overall survival (OS) of 8.0 months compared to 9.9 months with Sorafenib. On the surface, it appears that SIRT’s performance is inferior to that of Sorafenib; however, we must take statistical significance into account.
Statistical significance allows us to infer whether a result occurred just by chance or is actually real. In this case, whilst Sorafenib’s OS was higher than that of SIRT, the finding was not statistically significant and hence we’d say that the OS was roughly equivalent for each group unless new evidence/data is uncovered.
It’s also worth pointing out that some market commentary that ‘SIRT does not increase overall survival in patients’ is incorrect. The result simply says that it doesn’t improve overall survival relative to the current standard of care, namely, Sorafenib.
Interestingly, SIRT performed better than Sorafenib on many other metrics. The response rate (i.e. data which indicates that the cancer has been affected by the treatment) was higher for SIRT than Sorafenib (19.0% versus 11.6%). Further, SIRT demonstrated a much better toxicity profile relative to that of Sorafenib. Rates of both low grade (i.e. a minor side effect) and high grade (i.e. a major side effect) adverse events were lower for SIRT and quality of life indicators were much higher.
Overall, it seems that SIRT is equivalent to Sorafenib in terms of OS benefit but makes patients less sick and with a better quality of life in their final days.
There is more work to do before the result can be commercialised. Notably, the FDA in the US would need to give SIRT a label upgrade, and insurers/government payees would need to be convinced of the efficacy of the treatment. Once Sirtex has the required approvals, it will then begin consultations with the oncologist community.
The stock is down 14% today and we’re slightly puzzled as to why. Whilst there are still hurdles for the firm to jump, the study provides a medical basis for use of SIRT over that of Sorafenib. At worst, the study should have nil impact and, at best, a decent clip of upside. Note that a treatment of SIRT is much less expensive than Sorafenib and seems to make patients much less sick. Hence it appears to have a good value proposition.
We do have more questions around the sub-group data/efficacy of the result which will be released in time. Understanding under what conditions the treatment is effective, and when it isn’t, is crucial to the firm’s valuation. Montgomery is hence not in a position to discuss as to what value the firm may be, but we will continue to blog on SRX as more results are released.
Montgomery does not own shares in Sirtex.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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matthew burge
:
The problem SRX have in gaining market share in HCC treatment is that sorafenib treatment leads on to second line regorafenib (soon to be approved by the FDA for HCC treatment after sorafenib failure). The larger elephant is the room is immunotherapy. Recent data suggests nivolumab has significant activity in HCC and is well tolerated. These drugs will likely become the future of treatment against HCC.
Sean
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How can shares be below fair value at $29 in October 2016, but you sold them and aren’t buying now at $15?
Roger Montgomery
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Because our opinion of any company’s prospects may change Sean! Businesses are dynamic and their outlooks, their management, their profitability can all change. In any six month period there will have been a been a raft of announcements by a company that need to be examined and understood. In such a dynamic environment, we should be expected to change our view in order to protect our investors funds. While we have underferformed last year, we have beaten the market in our long-only funds since inception of each fund.
If we said we liked and owned something in 2010, does that mean we must still believe it to be true, and own it, today? What if we liked it in 2011, or 2012, 2013, 2015? Where does one draw the line in time that says we have to hold to our view constant? There are stocks we own today that we might sell completely tomorrow.
We own a portfolio, which is perhaps like a professional football team. By that I mean that we own a portfolio of ‘players’ and innevitably we will have individual players that are injured, leave for another team, or are benched. But because we take a portfolio approach and rarely invest more than a few percent of the portfolio in any individual ‘player’, the team will live to play another game, and another game after that. Please expect our opinions to be dynamic. If we like something right now, it could still be the case that new information turns up tomorrow to change our opinion. And as we have warned here at the blog many times, we aren’t managing your portfolios and so cannot possibly know your needs and circumstances. You must seek and take personal professional advice before undertaken any activity in securities markets.
Zeke Solomon
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Scott,
You appear to be the only rational analyst in respect of your conclusions about the SARAH Study. The market has overlooked a very important point when considering the results of the SARAH Study ie that Sirte’s product performed as well as the only available first line treatment for HCC when considering OS. What this means is that, since the SARAH Study results became available, the marketing opportunities which was only available to sorafenib (ie first line treatment ) is now accessible to Sirtex. This must add to Sirtex’s sales, especially factoring in the significantly improved quality of life offered by Sirtex’s spheres. Like you I cannot understand the market’s response to the very positive outcome of this study to Sirtex’s sales potential.
Kerrod Thomas
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Am I reading this correct – all Montgomery funds have sold out of Siretx?
Carlos
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I made good profits selling Sirtex at $26 but will stay well away from now on. They have fallen into the too hard basket, too hard to analyse, to forecast future profitability and the complex and disappointing results of trials can produce dramatic slumps in share price. Too risky now.